What You’ll Learn
- Whether the federal Investment Tax Credit still applies to commercial solar in 2026
- Key deadlines under Section 48E and what “begin construction” means
- How MACRS and bonus depreciation reduce the net cost of a system
- What Direct Pay is and which organizations qualify
- State incentive stacks in PA, NJ, and DE that layer on top of federal credits
- How Foreign Entity of Concern (FEOC) rules affect equipment sourcing
Are Commercial Solar Tax Credits Still Available?
Commercial solar tax credits remain available in 2026 under Section 48E of the Internal Revenue Code, but the window to qualify is closing fast. Businesses that begin construction by July 4, 2026 can still claim the full 30 percent Investment Tax Credit, and when combined with accelerated depreciation, many companies recover close to half the system cost through tax benefits alone.
The One Big Beautiful Bill Act, signed on July 4, 2025, accelerated the phase-out of clean energy tax credits originally established under the Inflation Reduction Act. While the residential solar tax credit under Section 25D ended on December 31, 2025, the commercial Investment Tax Credit under Section 48E follows a different and more favorable timeline. This creates a significant but time-limited advantage for businesses, nonprofits, and commercial property owners who act before the deadlines pass.
This guide covers exactly what the credit is worth, who qualifies, what deadlines apply, and how to stack federal and state incentives for the strongest possible return.
The Section 48E Investment Tax Credit: What It Covers
Section 48E is the federal Investment Tax Credit for commercial clean energy projects. It allows eligible businesses to claim 30 percent of qualified solar installation costs as a dollar-for-dollar reduction in federal tax liability. The credit applies to the total cost of the system, including panels, inverters, racking, wiring, battery storage installed with solar, and labor.
To receive the full 30 percent base rate, projects over 1 MW must meet prevailing wage and registered apprenticeship requirements. Projects under 1 MW automatically qualify for the full rate. Additional credit adders can push the total above 30 percent:
- Domestic content adder: Up to 10 percent for projects using qualifying U.S.-manufactured components
- Energy community adder: 10 percent for projects located on brownfield sites or in communities affected by coal plant closures or fossil fuel employment declines
- Low-income community adder: 10 to 20 percent for qualifying projects in designated low-income areas (application-based)
With all eligible adders, certain projects can reach an effective credit rate of 50 percent or higher, though most commercial installations in the PA, NJ, and DE region will land in the 30 to 40 percent range.
Critical Deadlines: Begin Construction by July 4, 2026
The most important date for commercial solar in 2026 is July 4, 2026. That is the deadline to begin construction and preserve eligibility for the Section 48E Investment Tax Credit under the most favorable terms.
Here is how the timeline works:
If Construction Begins by July 4, 2026
The project qualifies for the full 48E credit as long as it is placed in service within four calendar years, generally by December 31, 2030. This is the best path for most commercial projects because it provides flexibility to complete design, permitting, and installation without rushing.
If Construction Begins After July 4, 2026
The credit is only available if the project is placed in service by December 31, 2027. That leaves an extremely tight window for design, procurement, permitting, and installation, and most projects will not be able to meet it.
What Counts as Beginning Construction
IRS Notice 2025-42, issued in August 2025, changed the rules for how projects establish that construction has begun. For solar projects larger than 1.5 MW AC, the previously available 5 percent safe harbor method has been eliminated. These larger projects must now satisfy the Physical Work Test, which requires significant physical work of a substantial nature to be performed on or before the deadline.
For solar projects of 1.5 MW AC or smaller, which includes most commercial rooftop systems, both the Physical Work Test and the 5 percent safe harbor remain available. Under the 5 percent safe harbor, a project begins construction when the taxpayer pays or incurs at least 5 percent of the total project cost.
In either case, the project must also satisfy a continuity requirement, meaning construction activity must continue without extended gaps. The easiest way to satisfy continuity is to place the system in service within four calendar years of beginning construction.
MACRS Depreciation and Bonus Depreciation
The Investment Tax Credit is not the only federal tax benefit for commercial solar. Businesses can also deduct the cost of the system through accelerated depreciation under the Modified Accelerated Cost Recovery System, known as MACRS.
Solar equipment is classified as 5-year MACRS property, which means the depreciable basis of the system can be written off over approximately six tax years using an accelerated schedule that front-loads deductions into the early years of ownership.
When the ITC and MACRS are combined, the math works like this. After claiming the 30 percent ITC, the depreciable basis is reduced by half the credit amount, leaving approximately 85 percent of the original cost available for depreciation. Under current rules, 100 percent bonus depreciation may still apply, allowing the entire depreciable amount to be deducted in year one.
On a $500,000 commercial solar installation, this combination typically recovers $150,000 through the ITC and tens of thousands more through first-year depreciation, depending on the business’s tax rate and structure. For many companies, the net cost of the system after tax benefits is roughly 45 to 55 percent of the gross installation price.
Foreign Entity of Concern Rules
Starting January 1, 2026, projects that begin construction must comply with Foreign Entity of Concern restrictions to remain eligible for the Section 48E credit. These rules limit the use of components and materials sourced from or manufactured by entities connected to China, Russia, Iran, or North Korea.
The threshold for what constitutes prohibited material assistance varies by year. For projects beginning construction in 2026, the limit is 40 percent of total manufactured product costs. That threshold tightens to 45 percent in 2027 and continues increasing in subsequent years.
For businesses planning a 2026 project, this means working with an installer who sources equipment from compliant manufacturers and can provide the documentation needed to certify eligibility. Projects that began construction before December 31, 2025 are exempt from FEOC restrictions entirely.
👉 Learn more about Sunwise commercial solar services
Direct Pay for Tax-Exempt Organizations
Direct Pay, formally known as Elective Pay under Section 6417, allows tax-exempt entities to receive the Section 48E credit as a cash payment from the IRS rather than a tax deduction. This makes the commercial solar credit accessible to organizations that do not owe federal income tax, including nonprofits, churches, synagogues, mosques, schools, hospitals, local governments, tribal governments, and rural electric cooperatives.
The mechanics are straightforward. After installing a qualifying solar system, the organization registers with the IRS, receives a registration number, and claims the credit as a payment on its tax return, typically Form 990-T. The IRS then issues a refund equal to the credit amount. For a $200,000 system, that would be a $60,000 cash payment at the 30 percent rate.
Direct Pay follows the same construction deadlines as the standard Section 48E credit. Tax-exempt organizations must begin construction by July 4, 2026 and place the system in service within the applicable window to qualify.
👉 Read our full guide to Direct Pay for nonprofits and government entities
State Incentives That Stack With Federal Credits
Federal tax credits are the largest single incentive for commercial solar, but state-level programs add meaningful value on top. Here is what is available in the states Sunwise serves.
New Jersey
New Jersey offers one of the strongest commercial solar incentive stacks in the country. The Successor Solar Incentive Program, known as SuSI, pays a fixed rate of $85 per megawatt-hour for qualifying solar energy production, locked in for 15 years. Commercial systems also benefit from net metering, which credits excess generation at full retail rates. Solar equipment is exempt from state sales tax, and the added value of a solar installation is excluded from property tax assessments.
Pennsylvania
Pennsylvania’s commercial solar incentives center on Solar Renewable Energy Credits, or SRECs. Businesses earn one SREC for every megawatt-hour of solar production, and those credits currently trade between $25 and $40 each. Net metering is mandated for all investor-owned utilities, with commercial systems eligible up to 3 MW. Pennsylvania does not currently offer a sales tax or property tax exemption specifically for solar installations.
Delaware
Delaware offers Green Energy Program grants for commercial solar installations and maintains net metering policies that credit excess production. The state also provides sales tax exemptions on solar equipment purchases.
What Businesses Should Do Now
The combination of the July 4, 2026 construction deadline, tightening FEOC rules, and the potential for equipment and permitting bottlenecks means that businesses considering commercial solar should begin the process as early as possible. Here is a practical timeline:
- Q1 2026: Request a Sunwise consultation and preliminary design to establish project feasibility and estimated costs
- Q2 2026: Finalize equipment selection with FEOC-compliant components, execute an EPC contract, and begin physical work or incur at least 5 percent of project costs to establish beginning of construction
- Q3-Q4 2026: Complete installation, inspections, and utility interconnection
- Q1 2027: File taxes and claim the Section 48E credit for the tax year the system was placed in service
For larger projects that may not be completed by year-end 2026, beginning construction before July 4, 2026 preserves the credit with a placed-in-service deadline of December 31, 2030.
How Sunwise Can Help
Sunwise Energy designs and installs commercial solar systems across Pennsylvania, New Jersey, and Delaware. We handle site assessment, system design, permitting, utility coordination, and installation, and we work with your tax advisor to ensure your project meets every deadline and qualification requirement for the Section 48E credit.
If you are a business owner, property manager, nonprofit, school, or government entity considering solar, the time to start is now.
Commercial Solar Tax Credit FAQs
Is the 30 percent commercial solar tax credit still available in 2026?
Yes. The 30 percent Investment Tax Credit under Section 48E remains available for commercial solar projects that begin construction by July 4, 2026. Projects must be placed in service within four calendar years of beginning construction, generally by December 31, 2030, to claim the credit.
What is the difference between the residential and commercial solar tax credit?
The residential solar tax credit under Section 25D expired on December 31, 2025. The commercial credit under Section 48E is still active and follows a separate, more extended timeline. Homeowners can still access commercial tax benefits indirectly through solar leases and power purchase agreements where a third-party owner claims the 48E credit.
Can a nonprofit or church claim the commercial solar tax credit?
Yes. Tax-exempt organizations can receive the credit as a cash payment through the Direct Pay provision under Section 6417. The IRS issues a refund equal to the credit amount after the organization files its tax return with the required registration number.
What does begin construction mean for the July 4, 2026 deadline?
Begin construction can be established through the Physical Work Test, which requires significant physical work on the project, or for systems of 1.5 MW AC or smaller, through the 5 percent safe harbor, which requires paying or incurring at least 5 percent of total project costs. IRS Notice 2025-42 eliminated the 5 percent safe harbor for larger projects.
How much can a business save with the commercial solar tax credit and MACRS?
A typical commercial solar installation recovers approximately 45 to 55 percent of the gross system cost through the combination of the 30 percent ITC and accelerated MACRS depreciation. On a $500,000 system, that translates to roughly $225,000 to $275,000 in total tax benefits.
Do FEOC rules affect commercial solar projects in 2026?
Yes. Projects that begin construction after December 31, 2025 must certify that manufactured components do not exceed the material assistance threshold from Foreign Entities of Concern. For 2026, the limit is 40 percent of total manufactured product costs. Working with an installer who sources compliant equipment is essential.
The information in this guide is for informational and educational purposes only and does not constitute legal, financial, or tax advice. We are not licensed tax advisors or financial professionals. The tax laws and regulations discussed are complex and subject to change and interpretation. Consult with a qualified tax professional to understand how these provisions apply to your organization’s specific circumstances.
